Nedcor SecuritiesHealthcare Conference

March 2004

New Clicks – Healthcare in changing regulatory environment

• Healthcare strategy

• Integrated channel to market– UPD

– Clicks Pharmacy

• Legislative changes

• Draft pricing regulations

Healthcare strategy

• Leverage benefits of integrated channel to market• Extend retail presence & expertise into pharmacy• Establish efficient, compliant & profitable low-cost drugstores • Promote co-ownership model• Improve front to back shop ratio• Synergies from combining pharmacy with current offering -

lower overheads & increased footfall• Franchise model retained – using compliant format• Explore black empowerment opportunities

Wholesale & distribution - UPD model

• Model tried & tested internationally• Largest national wholesaler in SA• Efficient working capital management • Expertise in fine distribution

UPD provides distribution for integrated channel to market• Pharmacies carry less stock• Act as warehouse for pharmacies • Distribution & service levels key

Wholesale & distribution - UPD model

UPD: 43%of other

wholesalebusiness

DistributorsR 4 626m

49%

ManufacturersR 988m

11%

All Other Wholesalers

R 3 788m40%

UPD

• Growth in turnover from PM&A & independent pharmacies

• Retained most independent pharmacy customers

• Standardised terms on FMCG suppliers

• Clicks pricing on top FMCG lines available to customer base

• Two franchise models in the group – Link + Multicare

• Develop Link offering as premium banner

• Develop programmes to enhance Link pharmacy loyalty to UPD – new franchise agreement

Clicks Pharmacy

• Create an experience of pharmacy never seen before in SA

• Combine the best of what Clicks offers with the best of the pharmacy experience

• Enhance the Clicks brand qualities of value with convenience & service

Pharmacy in Clicks

• Regulatory approval for PM&A deal• Application for licences

– PM&A (waiting for approval of licence transfers to be able to consolidate)

– Additional licences in selected stores– Underserviced areas – discuss with government

• All New Clicks wholly-owned/JV pharmacies to be rebranded Clicks Check this

Learning from AustraliaConversions:• Converting existing Priceline store (Prahran)

– Sales growing in excess of 40%– Back & middle shop sales already at 18% - should double

• Converting existing pharmacy (Bentleigh) – Script sales grown by 20%– Front shop sales up from 10% to 75%

New site:• Mornington

– Turnover A$45k per week from 300m²– Front shop sales 50%

Legislative changes

• Original source procurement – Levelling of the playing field – ethical standards +

transparency– Small impact on current wholesale customers– Service levels will be the differentiator

• Generic substitution– Single channel distribution - lower market share

of branded ethicals - better placed to benefit– Currently, margins better

• Single exit pricing

Draft pricing regulations

• Support statutory intervention to– address current medicine pricing anomalies– make pricing more transparent– make medicines more affordable & accessible

• Concerned about negative impact on viability of pharmacy wholesaling & retailing

• 90 day period to engage in constructive dialogue – working together with other interest groups

• Don’t expect regulations to be implemented in current form or by May 2004

• Aim to achieve the objectives in a constructive & sustainable way that does not undermine the viability of pharmacy & pharmaceutical services

Impact on New Clicks

• Retail pharmacy– Even though reduced pharmacy margin &

volumes, will be benefit from increased front shop sales

– Independent pharmacists under threat – potential to attract them into the group

– Competitive advantage of discount pharmacies to be eroded

Impact on New Clicks (continued)

• Wholesale/distribution– Viable for UPD because of efficient model,

although volumes would be reduced– However, may lead to consolidation of other

distributors - opportunity for UPD to increase volumes & widen geographical footprint

– Multinational manufacturers may withdraw from SA – opportunity for UPD to reach distribution & marketing agreements

– Public/private partnership possibilities in terms of distribution & dispensaries

Questions ?

Thank You